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27, 33 (1983), affd. without published opinion 747 F.2d 1463 (5th
Cir. 1984).
In a situation such as theirs, where a shareholder actively
participates in the trade or business of an S corporation,
petitioners contend that the distinction between the business of
the S corporation and its shareholder is an "absolute fallacy".
No doubt, due to the extent of their participation in the
businesses of the S corporations, petitioners sincerely
considered the businesses of the S corporations to be one and the
same as petitioner's. They argue that the use of the word "by"
as opposed to "as" in the first sentence of section 1402(a)
suggests that if an individual actively participates in the
conduct of a business and derives income therefrom, the form of
the business is "irrelevant" in determining whether such income
constitutes net earnings from self-employment. Petitioners
suggest that for purposes of sections 1401 and 1402 a shareholder
who is a passive investor in an S corporation should be treated
like a limited partner whose distributive share of partnership
income and losses are not considered net earnings from self-
employment. Conversely, they argue that a shareholder who
actively participates in the conduct of an S corporation's
business should be treated like a sole proprietor or a general
partner whose distributive share of the partnership income and
losses is considered net earnings from self-employment.
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